How Can Business Owners Increase Their Chances of Success?

In this Huffington Post piece, Penny Collicoat advises newbie business owners on how to budget, manage cash flow, and minimize taxes.

[x_blockquote cite=”Penny Collicoat” type=”left”]Once you go into the business, half of it is running the business and the other half is your passion or your job or thing that you love. If that’s not your area of your expertise you need to go and get advice before you go and do it.[/x_blockquote]

So you’re starting a small business — great! You know how to budget, how to manage cashflow, you’ve worked out what wage you’re going to pay yourself and how to keep the tax man happy? No. Oh dear.

Don’t fret. According to Penny Collicoat, principal with financial planning business Women with Edge, you’re not alone.

Many small business owners leap into their venture without a lick of financial sense and end up flailing in a sea of bills and overdrafts.

Here, she shares some tips to make sure you don’t starve (or rent out the family moggy to perform in a cat cafe).

Plan plan plan until you can plan no more

Collicoat said small business owners were often well prepared to sell their skills, products or services, but often ill equipped to run a business.

“Once you go into the business, half of it is running the business and the other half is your passion or your job or thing that you love,” she told The Huffington Post Australia.

“If that’s not your area of your expertise you need to go and get advice before you go and do it.”

She said owners needed to work out the structure of the business first — will you be a sole trader, a limited partnership or a company — and then consider what your projected income might be, if you will pay yourself a regular wage or take money when you are flush, how you will do your banking, what accounting system will best suit your operation and whether you’ll do it yourself or pay a bookkeeper.

The best people to advise you are financial planners and accountants, and there are national registers for these if you don’t have one already, or you haven’t been recommended one. Collicoat said asking your Facebook or LinkedIn contacts could flush out good contacts also.

Don’t think you’ll be an overnight success

Collicoat said budgeting was critical for the success of a small business.

“Putting that budget in place — estimating your income and what your expenses will be — is really important before you launch in,” she said.

“Do a yearly budget and break it down in months. Christmas and January is such a quiet time for so many businesses, so you need to allow for that.”

Review your budget every six months to see how your business is tracking.

“Take the time and work out what are your biggest, chunkiest costs — is there any way to change it?” said Collicoat.

“Whether it’s stationery or telephone bill, can you find a cheaper supplier online? It’s just little things like that can make a huge difference.”

Budgeting is particularly important when everyone who said they’d support you disappears.

“Those people who leave a job and start a business say that everyone is so positive and encouraging and say ‘oh my gosh, of course we will use you’,” she said. “But if you have 20 people who have said that, you should really only allow for five of those to move with you when you are doing your budgeting.”

Keep your costs on the down-low

Minimising fixed costs is key,” said Collicoat. Consider working from home if you can or rent a small space that can expanded or reduced in a year and look for online deals for office supplies.

Employ staff on a contract, casual basis or intern arrangement or even investigate virtual staff from websites such as Upwork.

Keep your cashflow flowing

Making it easy for people to pay you means your bank balance is topped up more regularly.

“On your invoice put on your BSB and account number, tell them how many days you expect to be paid within and get it set up so you can be paid via credit card,” Collicoat said.

If a client can pay by credit card — even though the merchant fees can sting — you’ll be paid faster as clients aren’t waiting for cash to come into their coffers before passing it on.

Conversely, consider payment plans for anything you buy for the business — furniture or computers for instance — so you can smooth out your payment plans.

And if you’re working on a long-term project, invoice the client early.

“Bill a section upfront, another section in the middle and a lump sum at the end and don’t release your product until you have that final payment,” she said.

Take time out for the tax man

No one wants to be hit with a huge tax bill at the end of the financial year, so Collicoat said to put money aside every time you were paid. Small business tax rates range between 28.5 percent and 30 percent as a rough guide.

“Have a separate account — call it your tax account — an online saver is best so you can’t access it easily,” Collicoat said.

Ditch the dodgy clients

So you’ve got a client that runs consistently late with their payments, you spend a lot of time chasing them and tearing your hair out. Collicoat says: ‘it’s time to go, naughty clients’.

“Once a bad payer, always a bad payer, so do you really need them as a client?” she said. “They obviously don’t respect you enough.

“Your effort and your stress in chasing them, talking to them and managing that would be better spent building the business.”

Always have a Plan B

Just like any good Doomsday prepper, you need to have a fallout bunker — of the financial kind.

“Make sure your personal finances are in order and you’ve got a cash stash before you go and do this,” Collicoat said.

“Maybe you refinance your house and draw down on your mortgage so the money is sitting in the offset account. Just having that fallback position that you can pay the bills if you need to and you can put food on the table is valuable.

“It’s not an ideal position but I think you’ve got to prepare for worst case scenario.”

Note: For more advice on how business owners should manage their finances, read this blog on RL Brown Wealth Management.

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Author Ron L. Brown, CFP®

Ron is a CERTIFIED FINANCIAL PLANNER™ and president of R.L. Brown Wealth Management. He specializes in retirement, estate, and business planning for professionals and entrepreneurs.
Ron assists his clients with creating a financial plan to ensure they are able to live their ideal lifestyle during retirement and leave a strong legacy for their family.
Ron has been featured in The Wall Street Journal, US News, Yahoo Finance, Investopedia, and numerous other high profile financial publications.